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Economics & Finance
Articles by Nagasravan Tamma
Page 7 of 27
What is debt restructuring in financial restructuring?
Financial restructuring is a process of reorganizing companies’ financial structure. Companies’ financial structure consists of both debt and equity capitals. Reorganizing financial structure can be from the asset side or liability side of the balance sheet.Debt restructuringIn this process, the debt capital of the company is reorganized by reorganising the items in the balance sheet. It is used as a company financial tool rather than equity restructuring because, financial manager looks to minimize the cost of capital by improving efficiency.Ways of debt restructuring are as follows −Change in debt part by using the market opportunities by low cost borrowings.Increase in ...
Read MoreWhat is acquisition financing?
To fund a merger and acquisition, the source of capital is required. To attain those funds is a complex thing because; it requires a lot of variations and combinations. Proper planning is required to get the capital for merger and acquisition. With various alternatives available, a proper mix is selected to get the low cost of capital.TypesThe types of acquisition financing are as follows −Stock swap − Acquirer exchange stock with the targeted company.Equity − Acquiring companies targets the companies which operate in an unstable industry with uneven cash flows.Cash − Takes place if an acquired company has smaller/low cash reserves.Debt − Banks ...
Read MoreWhat are the differences between liquidation and bankruptcy?
Let us learn the concepts of liquidation and bankruptcy before understanding their differences.LiquidationLiquidation is the process of winding up a company by selling their assets and distributing them based on solvent or insolvent business. Liquidation occurs when a company decides or reaches a point when it decides not to continue their business for various reasons.The main reason to liquidate the asset is due to insolvency, where business reaches a point that it can’t pay the due payments. The person who manages the liquidation process is called a liquidator.TypesVoluntary liquidation (members) −Business able make payments but owner makes a choice to ...
Read MoreWhat is the merger and acquisition deal structure?
Deal structure is the binding agreement between companies, which outlines rights and obligations for both the companies. This agreement states about the entitlements and constraints of companies.In other words, deal structure is nothing but terms and conditions of a merger and acquisition. It prioritizes the objectives and the major priorities of both the companies are satisfied. Preparing a merger and acquisition deal is challenging and complicated.Process of deal structure is explained below −Negotiation stance.Latent risks and how they can be managed.Maximum risk can be tolerated.Conditions (negotiations may cancel).Some of the factors considered while preparing deal structure are as follows −Financing ...
Read MoreWhat is the stock acquisition?
If the buyer wants to acquire stocks of the targeted company directly from selling to the shareholders, then that acquisition is called stock acquisition. In this, a buyer will get the ownership in both assets and liabilities of the business.In stock acquisition, the buyer sees a potential growth in a particular company’s stocks and hence, the buyer may feel that the current liabilities are manageable or minimum. Buyer will prefer stock sale without necessity of ownership transferring of each stock. This kind of acquisition is a strategic decision of corporate finance roles.FactorsThe factors to be considered in stock acquisition are ...
Read MoreWhat is asset purchase agreement in an asset deal?
Asset purchase agreement is the agreement between buyer and seller of an asset. It states the terms and conditions related to the purchase and sale of an asset. The asset may be a plant and machinery, goodwill, stock etc.PrerequisitesThe prerequisites for an asset purchase agreement are as follows −Sale and transfer of chosen asset/assets.Purchase price.Representations.Precedent.Conduct.Closing.Obligations (post – closing).Conditions.Compensation.Terms and termination.Other/miscellaneous.Requirements (Post completion)After completion of the asset purchase agreement, following are the requirements −Stamp duty and stamp duty land tax (if applicable).VAT payment (if applicable).Replacing old contracts.Administrative issues.Reasons for failureThe reasons for failure in this agreement are given below −Dealing with ...
Read MoreWhat is an asset deal in merger and acquisition?
If the buyer wants to purchase an operating asset instead of shares in a merger and acquisition transaction, then that deal is called an asset deal. An asset deal is not a form of acquisition. It comes under transfer of business units/assets.To complete the asset deal transaction, an asset purchase agreement is made between the buyer and the seller. This agreement outlines the asset purchased.Asset purchase agreement (APA) includes payment structure, representations, considerations, warranties, legal structures etc.Asset purchase agreementAsset purchase agreement is used to complete the asset deal transaction. The agreement outlines the specific assets (which will be purchased), total ...
Read MoreWhat is disinvestment in divestitures?
Disinvestments take place when the companies want to liquidate their stocks. If the companies want to change the rules by pressurizing the government or an industry, they will go for disinvestments, which also results in funds reduction.ProcedureThe procedure for a disinvestment in divestiture is as follows −Principle consent by administrative ministry, Centre public sector enterprise (CPSE).Proposal to disinvest by the Cabinet Committee on Economic Affairs (CCEA) approval.With an approval of the finance minister, the Constitution of inter-ministerial group to guide the disinvestment process.Inter-ministerial group appoints the advisers (merchant bankers, legal advisers, book running lead managers).Book running lead managers will give ...
Read MoreWhat is the equity carve outs in divestitures?
Equity carve out is a process, where a subsidiary company is separated from the parent company. Subsidiary company has a new board of directors and financial statements. Parent company offers strategic support and resources.The parent company also retains controlling the interest in the new entity. Equity carve out allows strategically diversification (other than its core operation).Understanding carve outsParent company sells some of the shares of its subsidiary or child company through Initial public offering (IPO). The subsidiary or child companies have new shareholders after the event. Usually, carve out is followed by full spin off of subsidiaries to shareholders of ...
Read MoreWhat is split in divestiture?
A split is the process of dividing a company into two or more legal units. Its main aim is to maximize profitability by eliminating the stagnant units.The splits are divided into the following −Split upsCompany is divided into two or more entities, where the parent company loses its existence. In merger and acquisition, split up are corporate actions, where a company is split or divided into more than one company. These companies are independent and they have separate administrations. Share of the parent company is exchanged between newly formed independent companies.Some of the reasons for split ups are as follows ...
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